Fox News runs with faulty industry-funded "study" of Baucus bill

Fox News has seized upon a study conducted by PricewaterhouseCoopers (PWC) for America's Health Insurance Plans (AHIP), which concluded that under the Senate Finance Committee health care reform bill, "by 2019 the cost of single coverage is expected to increase by $1,500 more than it would under the current system and the cost of family coverage is expected to increase by $4,000 more than it would under the current system," in some cases reporting the study's conclusions as fact. However, health care experts have noted that, in the words of health care economist Len Nichols, "Aside from the obvious conflict of interest associated with a report funded by the very industry it analyzes, PWC's basic analytic assumptions -- by their own admission -- are at variance with the bill and the opinions of most analysts."

Fox News runs with industry-funded study

Fox Nation states as fact, "Baucus Plan Would Increase Family Premiums by $4K per Year." The PWC report said that the cost of the average family coverage in 2019 would increase from $21,900 under current law to $25,900 under the Finance committee bill. The following Fox Nation headline, which linked to a Hot Air blog post, was posted on TheFoxNation.com on October 12 [accessed on October 13]:

Stephen Moore: "As the health insurance study showed yesterday," bill will make "insurance more expensive." Fox News contributor Stephen Moore stated on America's Newsroom, "As the health insurance study showed yesterday, for people who have insurance already, the only -- the only repercussion of this bill is it's gonna make their insurance more expensive." [America's Newsroom, 10/13/09]

Fox anchor Patti Ann Browne recites PWC numbers. Following Moore's assertion that "[a]s the health insurance study showed yesterday, for people who have insurance already, the only repercussion of this bill is it's gonna make their insurance more expensive," Browne said, "[L]et's take a look at those numbers right now. This year, a typical family policy costs $12,300. Let's put up our full-screen. In 2013, when the major provisions of the new plan would take effect, that would go up to 17,200. By 2016, it would be 21,300; 10 years from now, almost $26,000. And a typical individual policy would double from 4,600 now to $10,000 in 2019." Fox News also aired the following text:

[America's Newsroom, 10/13/09]

Fox anchor Brian Kilmeade asserts "many people" agree with PWC report. Kilmeade stated, "[T]he problem is with the insurance companies and the study that came out yesterday. And that study shows that premiums gonna go up $1,500 for an individual and $4,000 for families -- that's if you agree with Pricewaterhouse's review, and many people do, as well as this health study group." [Fox & Friends, 10/13/09]

Fox News correspondent Mike Emanuel explains PWC study's "point." Emanuel said of the report, "Senator [Max] Baucus [D-MT] went after it pretty hard. But their point was that, you know, any fees or taxes will get passed along to consumers. That will raise your costs. They are also saying that young people may not sign up for health insurance because the fines aren't that substantial. And if you are going to take everybody who has a pre-existing condition, you need young people who would be typically cheap to kind of balance the equation and so they're not convinced that young people will sign up in big numbers for health insurance reform to help balance that equation." [Fox & Friends, 10/13/09]

Fox News legal analyst Peter Johnson Jr.: PWC study is "very definitive." Johnson stated of the report, "[T]hey say the costs are going to go up 111 percent by 2019, rather than 79 percent. That a plan that would have cost $21,900 will then cost $25,900 for a family. But you know what this is emblematic of, Gretchen? This is emblematic of the corruption and the lack of transparency of this entire six-month process or so that's gone on." Johnson added, "[N]ow we have a report from PricewaterhouseCoopers paid for by the insurance industry that says that there is going to be a monumental increase -- increase -- in health insurance premiums, the exact opposite of what the president talked about at the very beginning as the reason for this plan. And they lay it out in a very definitive 26-page report, 'Potential impact of health reform on the cost of private health insurance coverage.' And it shows that in 24 of our 50 states -- 24 of our 50 states over the next 10 years, there will be plans -- the cheapest plans will, in fact, be considered Cadillac plans and subject to tax." [Fox & Friends, 10/13/09]

Fox anchor Martha MacCallum: Industry delivers "an ominous warning." Guest-hosting on On the Record with Greta Van Susteren, MacCallum called the PWC report "an ominous warning from the health insurance industry itself" and stated that "[t]hey had PricewaterhouseCoopers do an audit of how the Baucus bill would affect their numbers, and the report says that by 2019, the Finance Committee bill would hike insurance premiums by $4,000 for the average family -- hike them. The White House calls this a, quote, self-serving analysis from the industry -- from the insurance industry, one of the major opponents of health insurance reform. So what is the truth in this matter?" MacCallum spoke with Roll Call writer David Drucker, who stated that "part of the plan from the Democrats' point of view, is to raise fees or taxes, if you will, on the health insurance industry to help subsidize and pay for health insurance reform. And the health insurance industry just doesn't see how it can afford to take on these new fees if it doesn't get something in return, in terms of guaranteed new customers." [On the Record, 10/12/09]

PWC study's results skewed by questionable assumptions

Study ignores health insurance subsidies. The Congressional Budget Office concluded that the Finance Committee bill includes "$461 billion in federal subsidies that would be provided to purchase coverage through the new insurance exchanges and related spending." The PWC study focuses on four provisions and states that "[t]he reform packages under consideration have other provisions that we have not included in this analysis. We have not estimated the impact of the new subsidies on the net insurance cost to households."

Study assumes "full cost-shifting of cuts to public programs, and full pass-through of new industry taxes," but admits they don't "expect" that to happen. In a footnote, the report states that the estimated impact on the cost growth of premiums of the four provisions analyzed by PWC is based on the assumption of "payment of tax on high-value plans, full cost-shifting of cuts to public programs, and full pass-through of new industry taxes." Moreover, the report states of the excise tax on so-called "Cadillac" health insurance plans, "We have estimated the potential impact of the tax on premiums. Although we expect employers to respond to the tax by restructuring their benefits to avoid it, we demonstrate the impact assuming it is applied."

Health economist Len Nichols: PWC report "should not be taken seriously." Nichols, of the nonpartisan New America Foundation, wrote that "[t]he gloves are off in the fight for health reform, and the insurance industry has decided that it's time to start throwing analytically indefensible punches." Nichols stated that among the reports flaws are the "stunning omission" of the health insurance subsidies, the assumption that employers will not respond to the excise tax, and the assumption that all Medicare savings would translate to higher costs for providers. From Nichols' post on the New America Foundation's health blog:

Consider the source. Most think tank work is funded by Foundations, which by law are nonpartisan. They focus more on objectively informing the public debate than on promulgating particular points of view. On the other hand, consulting firm work is often funded by an interested party with a major stake in the outcome of a policy debate. Readers should be very careful before repeating or reporting claims made by reports that were funded by people (or businesses) with a "dog in the hunt."

Consider the openness of the data and methods. Good policy research uses nationally and statistically representative data so that its conclusions reflect behavior of the actual population. The PriceWaterhouseCoopers report uses proprietary data which are not representative of anything. Just because you have lots of data does not mean it accurately reflects the population.

As a great example, the Urban team describes their methodology and their model in great detail, so that its work is subject to scientific standards of scrutiny and reproducibility. The same cannot be said for the report AHIP commissioned from PriceWaterhouseCoopers. The consulting firm neither allowed neutral parties to check its methods, nor did it send it out for review by neutral parties before releasing to the press. The timing of the release (the Sunday of Columbus Day weekend, two days before the Finance Committee vote) indicates this report was about influencing the vote, not increasing the amount of good information in the debate.

The report ignores the subsidies included in the Finance Committee bill. Eighty-five percent of people getting coverage from the new insurance marketplace are going to receive financial assistance to pay for it. The estimates ignore this. How can you claim to analyze premiums without taking into account subsidies to help people afford that coverage? Providing subsidies to make insurance affordable is one of the primary goals (and costs) of reform. This is a stunning omission on the part of PriceWaterhouseCoopers.

The report ignores the excise tax on high-cost plans. It says: "Although we expect employers to respond to the tax by restructuring their benefits to avoid it, we demonstrate the impact assuming it is applied." You cannot purport to complete an economic analysis, and then ignore the behavioral effects of economic analysis! The claims that the excise tax will add to the cost of small and large group coverage should be ignored. The Congressional Budget Office (CBO) and most economists believe that the dual incentive for insurers to offer more value for dollar and consumers to choose less-expensive policies is one of the surest ways to slow the rate of health care cost growth.

The report assumes that all Medicare savings will be converted into private sector cost shifts. In other words, it assumes that all Medicare savings realized through the legislation would ultimately translate into reduced payments to providers, which will be shifted into higher prices for private payers. In fact, the biggest savings from the Medicare program in the legislation are realized from reducing the current formulaic overpayments to Medicare Advantage plans (a.k.a. private insurance plans), instead requiring them to bid competitively. Long-run changes to payment policy are really about creating incentives for higher-quality, efficient care -- not simply about paying providers less. In reality, many high-quality providers will make more under the proposed reforms. (This is why so many provider groups and coalitions like Health CEOs for Health Reform support smart reforms that realign incentives.)

The report assumes that premium growth in the absence of reform will be the same as per capita health care cost growth. They made this "assumption" even though premium growth has outpaced health care cost growth for the last 10 years. Ironically, this is primarily because some insurers have increased their market share, reducing competition in the marketplace. By underestimating expected growth in premiums, this baseline is biased against reform.

The report ignores the fact that under the Senate Finance bill, "If you like your coverage, you can keep it." The report overemphasizes the number of Americans who will have to "buy up" under reform. Not only does the Finance Committee bill allow existing plans to be "grandfathered," but it provides young adults with the option of purchasing a less-generous policy. When combined with provisions to allow young adults to stay on their parents insurance until they are 26, this will help keep costs down for young adults. Further, a vast majority of insured Americans now have plans that meet the actuarial value standards in the bill. The Finance Committee takes steps to stabilize premiums even further by providing a reinsurance fund for the transitional years in the new health insurance exchange.

The report conflicts with CBO's assessment of the individual mandate. There is a legitimate point, raised by insurers, about the individual mandate. If Congress reduces the penalties for remaining uninsured too much, it weakens the mandate. And that in turn impacts how the insurance markets -- predicated on the reform linchpin of guaranteed issue -- will function. However, the CBO has analyzed this question. It concluded the combination of subsidies and bidding incentives in the Finance bill does not hit the danger zone. Vigilance and further thought on this point is important, but this inflammatory report should not be taken seriously by lawmakers weighing the merits of comprehensive health reform.

Health economist Jon Gruber: PWC assumption "completely implausible." According to a New York Times Prescriptions health care blog post, Gruber, a health care economist at MIT, "said he evaluated the report Monday at the request of Senate Democrats and found it deeply flawed." Times writers David M. Herszenhorn and Sheryl Gay Stolberg further reported that Gruber "said that the industry report failed to take into account administrative overhead costs that he said will 'fall enormously' " as well as the federal health insurance subsidies. Gruber further disputed the PWC report's assertion that some "bronze plans" would become costly enough to be subject to the excise tax on "Cadillac plans," calling that claim "completely implausible," according to Herszenhorn and Stolberg.

Republican economist Keith Hennessy: PWC assumptions "absurd," "just silly, "[b]ogus." Hennessey, who served as White House chief economic adviser and director of the National Economic Council under President George W. Bush, wrote that while he believes the Baucus bill "would make health insurance more expensive ... we can't tell this from the partial PWC study." Hennessey specifically noted, "The PWC study assumes that medical care providers will pass through every dollar of reduced Medicare provider reimbursement rates as a dollar of higher costs to privately insured patients. That's absurd." He further wrote: "PWC assumes the Kerry tax on insurers selling high-cost health plans will be passed through to consumers. That's a safe assumption. But they also assume that those higher costs will be distributed to those who purchase plans of any cost. That's just silly. PWC should assume that the costs will be passed through only to those who buy high-cost plans. They also acknowledge that purchasers will change the benefits and structures of health plans to avoid the new tax, but ignore these adjustments in their calculations. Bogus." He also stated that the "study's biggest flaw" is that it does not address "the entire Baucus bill."

PricewaterhouseCoopers says AHIP instructed it to analyze only "four components" of the bill

PWC: "[O]ther provisions" could "offset some of the impacts we have estimated." In a statement released on October 12, PWC stated that "America's Health Insurance Plans engaged PricewaterhouseCoopers to prepare a report that focused on four components of the Senate Finance Committee proposal" and that "[a]s the report itself acknowledges, other provisions that are part of health reform proposals were not included in the PwC analysis." Indeed, the report stated, "We have not estimated the impact of the new subsidies on the net insurance cost to households. Also, if other provisions in the health care reform are successful in lowering costs over the long term, those improvements would offset some of the impacts we have estimated." From the statement, posted on Ezra Klein's WashingtonPost.com blog:

America's Health Insurance Plans engaged PricewaterhouseCoopers to prepare a report that focused on four components of the Senate Finance Committee proposal:

-- Insurance market reforms and consumer protections that would raise health insurance premiums for individuals and families if the reforms are not coupled with an effective coverage requirement.

-- An excise tax on employer-sponsored high value health plans.

-- Cuts in payment rates in public programs that could increase cost shifting to private sector businesses and consumers.

-- New taxes on health sector entities.

The analysis concluded that collectively the four provisions would raise premiums for private health insurance coverage. As the report itself acknowledges, other provisions that are part of health reform proposals were not included in the PwC analysis. The report stated on page 1:

"The reform packages under consideration have other provisions that we have not included in this analysis. We have not estimated the impact of the new subsidies on the net insurance cost to households. Also, if other provisions in health care reform are successful in lowering costs over the long term, those improvements would offset some of the impacts we have estimated."

PWC previously produced flawed report for tobacco industry

Independent review of PWC study found "serious methodological problems and errors of omission." In 1993, Arthur Andersen Economic Consulting released a review of a study by PWC (then known as Price Waterhouse) on the role of the tobacco industry in the U.S. economy. The review stated that "[t]he cumulative effect of PW's methods of attributing jobs to the tobacco industry is to produce patently unreliable results. Numbers produced by PW in this way are more likely to mislead an untrained reader into drawing false conclusions about the magnitude of the tobacco industry's contribution to the economy than to provide useful information to policymakers or them media." The review further stated that PWC "fails to take into account the negative economic impacts of the tobacco industry," adding that "[f]ailure to acknowledge this or to make any attempt to balance the costs and benefits of reducing tobacco use adds to the bias and unreliability of the PW Report."

Transcripts

From the October 13 edition of Fox News' America's Newsroom:

BROWNE: Well, that audit that we mentioned by PricewaterhouseCoopers.

[...]

MOORE: The other thing to remember is that 80 percent of Americans already have insurance, either through the individual market or through their employer. And we know from polls that about 80 percent of Americans who have coverage are very happy with their coverage. So the downside of this bill for people who are watching, if you get insurance from your employer, or if you're happy with your individual health insurance plan, what's the upside in this plan for you?

BROWNE: Right.

MOORE: As the health insurance study showed yesterday, for people who have insurance already, the only -- the only repercussion of this bill is it's gonna make their insurance more expensive.

BROWNE: And let's take a look at those numbers right now. This year, a typical family policy costs $12,300. Let's put up our full-screen. In 2013, when the major provisions of the new plan would take effect, that would go up to 17,200. By 2016, it would be 21,300; 10 years from now, almost $26,000. And a typical individual policy would double from 4,600 now to $10,000 in 2019.

MOORE: Now let me just say one thing about that, just to be fair.

BROWNE: Yes.

MOORE: It's true that even under the current system, health insurance costs are gonna go up.

BROWNE: Yes.

MOORE: But what the study shows is they're not going to go up as much as they will under this plan.

BROWNE: Right. And yesterday we were showing the increase. They were saying it's going to go up even if we do nothing, but it will go up more --

MOORE: That's right.

BROWNE: -- under this plan.

From the October 13 edition of Fox News' Fox & Friends:

KILMEADE: Also, the problem is with the insurance companies and the study that came out yesterday. And that study shows that premiums gonna go up $1,500 for an individual and $4,000 for families -- that's if you agree with Pricewaterhouse's review --

DOOCY: Right.

KILMEADE: -- and many people do, as well as this health study group.

DOOCY: That's right. And that health study group, you know, coming at the 11th hour -- the White House views this is as, hey, this a dirty trick, we thought we had the insurance industry onboard. They continue to defend it, however, did AHIP, which stands for the America's Health Insurance Plans, which is providing a lot of ammo and cover for the Republicans.

Under this plan, the Baucus bill, between 2010 and 2019, it says the cumulative increases for the typical family over 10 years would be $20,700. So as people go, we're going to save all of that money, but if you've got a private plan, according to this study, it could cost you over 10 years, 20,000 bucks.

CARLSON: That's why I'm not so sure this thing's going to pass today. Because the union is obviously a huge supporter of the Democratic Party. And if in fact they're going to come out against the Baucus bill in force, then I'm not so sure that everyone's going to vote for this today.

[...]

DOOCY: And, Mike, what about -- we were talking about this yesterday on the show. What about that insurance industry study that came out? It was prepared by PricewaterhouseCoopers. It said that over 20 years the average family's -- or rather over 10 years -- the average family's health care insurance cost would go up $20,000. Does the White House think that's a dirty trick?

MIKE EMANUEL (Fox News correspondent): Yeah, Steve, they were furious. And so they pushed back very quickly, questioning the timing of the report, suggesting that it was self-serving, and that this is an industry that standed to lose profits from health insurance reform being passed, and so they went after it pretty hard. Senator Baucus went after it pretty hard. But their point was that, you know, any fees or taxes will get passed along to consumers. That will raise your costs.

They are also saying that young people may not sign up for health insurance because the fines aren't that substantial. And if you are going to take everybody who has a preexisting condition, you need young people who would be typically cheap to kind of balance the equation, and so they're not convinced that young people will sign up in big numbers for health insurance reform to help balance that equation.

KILMEADE: Sure.

CARLSON: All right, Mike. Thanks very much. We will keep our eyes on --

EMANUEL: Thanks for having me.

CARLSON: -- Capitol Hill today to see how that all turns out.

[...]

CARLSON: The health care industry put out a report yesterday concluding that the proposed legislation would drive up costs. And now insurance companies and other groups that were originally supporting the Democrats' plan for reform may be having second thoughts. Fox legal analyst Peter Johnson Jr. is here with his "Prescription for Truth." Good morning to you.

JOHNSON: Morning. Hi.

CARLSON: All right. So this seems to be sort of a war of words against each other. You have the Obama administration and the Max Baucus plan now. And then right before the vote happens later on today, you have the release of this document yesterday, saying that the costs are going to go up dramatically.

JOHNSON: You know, they say the costs are going to go up 111 percent by 2019, rather than 79 percent. That a plan that would have cost $21,900 will then cost $25,900 for a family. But you know what this is emblematic of, Gretchen? This is emblematic of the corruption and the lack of transparency of this entire six-month process or so that's gone on.

CARLSON: In what way?

JOHNSON: Well, you know, the president made a big, big deal that he was attacking the insurance companies, that he was attacking insurance premiums out of control. At first, the insurance companies went along with that, because they saw the opportunity to have 40 million new people on the insurance rolls.

And then things started to change -- more taxes, more levies, more fines, these so-called Cadillac plans going out the window. And so now we have a report from PricewaterhouseCoopers paid for by the insurance industry that says that there is going to be a monumental increase -- increase -- in health insurance premiums, the exact opposite of what the president talked about at the very beginning as the reason for this plan.

And they lay it out in a very definitive 26-page report, "Potential impact of health reform on the cost of private health insurance coverage." And it shows that in 24 of our 50 states -- 24 of our 50 states over the next 10 years, there will be plans -- the cheapest plans will, in fact, be considered Cadillac plans and subject to tax.

CARLSON: Well, the administration obviously did not like the release of this report.

JOHNSON: No.

CARLSON: They said, quote, that they made a huge tactical blunder in releasing this study now. But obviously, back to my first question, there is a rhyme and a reason for releasing it yesterday.

JOHNSON: There is a rhyme and reason for releasing it yesterday, in order to affect the ability of the Finance Committee to pass that. And what they are saying is increased taxes, the Cadillac excise tax, the pass through from Medicaid and Medicare cost reductions are going to drive Americans' health premiums up through the sky over the next 10 years. That's what they're saying.

CARLSON: Peter Johnson Jr. -- to be continued.

JOHNSON: Absolutely. Good to see you.

CARLSON: We'll see you again tomorrow. Thank you very much.

From the October 12 edition of Fox News' On the Record with Greta Van Susteren:

MacCALLUM: And hours before the Senate Finance Committee will vote on their very important health care bill, and after months of being pointed at as the bad guy in the health care system, now an ominous warning from the health insurance industry itself.

They had PricewaterhouseCoopers do an audit of how the Baucus bill would affect their numbers, and the report says that by 2019, the Finance Committee bill would hike insurance premiums by $4,000 for the average family -- hike them. The White House calls this a, quote, self-serving analysis from the industry -- from the insurance industry, one of the major opponents of health insurance reform. So what is the truth in this matter?

Joining me now is David Drucker, staff writer for Roll Call. David, welcome. Good to have you here tonight.

DRUCKER: Good to be here, Martha.

MacCALLUM: You know, my first question is -- we've heard the administration point the finger at the health insurance industry, you know, throughout this entire debate, so what changed? Why all of a sudden did this vilified industry in this whole story fight back?

DRUCKER: Well, you know, they've been taking shots for several months, and I think as they see that we're about to move to a point where a bill is going to hit the Senate floor and a bill is going to hit the House of Representatives floor, they've decided it's about time they start speaking up from their point of view, or they're going to be left out in the cold.

You know, the drug industry made a deal with the White House. Other industries have made a deal. But part of the Baucus bill, and part of the plan from the Democrats' point of view, is to raise fees or taxes, if you will, on the health insurance industry to help subsidize and pay for health insurance reform. And the health insurance industry just doesn't see how it can afford to take on these new fees if it doesn't get something in return, in terms of guaranteed new customers.

But I think they decided to speak up now simply because time is running short, and if they didn't do it now, then they couldn't have any effect.

MacCALLUM: And isn't it also true that some of the modifications to this bill are -- are less profitable for them, that -- that, you know, there's lower -- lower fees, lower fines imposed on people who don't go out and buy health insurance. So that's going to hurt them, right?

DRUCKER: Correct, that could hurt them. And the way the health insurance industry has looked at it is they're all in favor of reform, especially if it's a mandate that Americans must buy health insurance, because it's a guaranteed customer base for them.

MacCALLUM: Right.

DRUCKER: But the way these bills have been coming down the pike, they don't feel they're going to have enough new guaranteed customers to pay for all of the fees and other mandates that are going to be swung their way, and so they see it as a problem.

MacCALLUM: You know, one of the things that struck me when looking over some of these documents involved in all this is that the administration says, well, this -- this audit -- which, by the way, was done by PricewaterhouseCoopers, who's been in the audit business for quite some time -- they're saying this whole thing only points out what could go wrong.

It's kind of a worst-case scenario, and the cost would increase by this amount in the worst-case scenario. But one could also argue that the bill's plan, which shows all kinds of a savings in Medicare and Medicaid that, you know, people say, gee, if we knew all those savings were there, why aren't we chopping them out right now, also assumes pretty much that everything goes right, wouldn't you say?

DRUCKER: Well, of course. Obviously, if you're behind the Baucus bill, you think it's a good thing, and you don't think there's going to be much of a problem. I think it's important to point out here that both legislation that's being proposed and this study by the insurance industry make assumptions based on what they think is going to happen. And it's hard to tell at this point --

MacCALLUM: Right.

DRUCKER: -- which one is right. And, look, we're only going to know through time. What is important to point out, though, is that the insurance industry's study does say that if you do nothing, prices will go up. They're just saying that the Baucus bill will cause them to go up higher.

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